The pandemic’s effect on multifamily housing

By: J. David Chapman/June 18, 2020

I have given my opinion on the effect the pandemic was having on office, retail, residential and industrial. I would like to share my insights now on multifamily. We typically look at three performance indicators. We analyze rent collection, asset values and number of transactions. The National Multifamily Housing Council recently surveyed its 11.5 million professionally managed apartments and the results are giving us a look at the effect of COVID-19 on performance.

All in all, we are seeing significantly better results than most feared. I think we are seeing the fruits of the owners and managers’ labor of reaching out to work with tenants. It also appears that Congress’ backstop efforts are working with the benefits provided, helping maintain performance in rent collection. Having said that, the results show that performance varies across apartment classes with Class C properties turning in worse performance in the timely payments category. Our assumption here is that renters in these properties may be more affected by job losses and backlogs in state unemployment bureaucracy. We also have some concern about holding up this performance if lawmakers don’t renew the support after the July 31 deadline.

I think we can safely say that multifamily has been affected less than other real estate sectors by the stay-at-home orders. This is especially true in the Sunbelt or Midwestern states, such as Texas, Oklahoma, Arkansas and Kansas, which haven’t seen the kind of impact in terms of COVID-19 infections that New York and other Northeastern states have experienced.

The data is showing that the price buyers are willing to pay is lower than the price sellers are willing to take, creating fewer transactions when compared to pre-COVID-19 levels. Although we have few transactions to evaluate, we are seeing a discount of 5% to 10% on pricing compared to what we saw prior to the pandemic on larger apartment assets. It appears that apartment assets priced at $25 million and under continue to trade well with less of a discount than we expected.

The other area we have kept an eye on is foreclosure, or forced selling of assets. There has been very little of this activity in the multifamily category, with most lenders understanding the situation and anticipating this to be a bump in the road working with property owners. There have been a significantly large number of multifamily owners taking advantage of refinancing and loan-restructure opportunities during this time.

J. David Chapman is an associate professor of finance and real estate at the University of Central Oklahoma (jchapman7@uco.edu).